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DRC – The growth path is less bumpy over past year

• Radial TBR tire maintains the riding role for DRC’s performance in 2024F of 25% YoY, owing to (1) the improvement of global goods rotation, (2) the elevated capacity in its phase-3 radial factory from 0.75 to 1.0 mn units/year from Q2-2024; and (3) the increased sales of the US market as we believe DRC’s products is able to be substitute for Thailand’s TBR tires in H2-2024.
• In 2024, we anticipate DRC’s operating margin will improve by +6 bps YoY due to the historic lows of 2023 coupled with our assumption that DRC will increase the natural rubber inventory reservation or level up its selling price to partly offset the upward shifts from this material. In summary, for 2024, we project DRC’s net revenue and NPAT to gain VND 5,349 bn (or USD 221 mn, +19.0% YoY) and VND 235 bn (or USD 12.2 mn, +19.9% YoY), resulting in an EPS of VND 2,331.
• We determine a one-year target price for DRC at VND 30,300/share, based on two methods: FCFF and P/E, with respective weights of 50% and 50%, which is -11% lower than the closing price on April 4^th However, DRC maintains a stable dividend policy, with an average payout ratio in 2024 of ~60%. Hence, we suggest that investors following the arbitrage strategy can consider accumulating DRC stock when the market undergoes a significant correction at a reasonable price. Investors who prefer stable dividends can flexibly disburse when the cash dividend yield is attractive more than the bank deposits.